Sunday, December 3, 2023

Why You Need to Choose and Use Performance Metrics Carefully and Beware of . . .

Most marketers are now deep into their planning for 2024, and a critical part of that planning is determining how marketing performance will be measured. Performance metrics are essential for effective marketing, but they can also have unintended consequences.

Surrogation can be a particularly pernicious source of such unintended consequences. Read on to learn what surrogation is, why it happens, and how to avoid it.

Measuring performance has been a prominent feature of the business landscape since double-entry accounting appeared in the 14th or 15th century. "You can't manage what you can't measure" is one of the most often-repeated maxims in the business world, and it's been an article of faith for generations of business leaders.

Performance measurement permeates virtually all business functions, including marketing. For the past several years, marketers have been increasingly focused on measuring the performance of their activities and programs, and many marketing leaders now use performance data to allocate budgets and make marketing mix decisions.

Overall, this has been a positive development. Using performance data to guide the choice of marketing tactics and investments should lead to more rational, evidence-based decisions.

However, performance metrics must be selected thoughtfully and used carefully because they are powerful tools that can produce unintended consequences as well as desirable results.

Surrogation is a frequent cause of unintended consequences in performance management systems. It can happen even when the selection and use of performance metrics are well-intentioned.

What Is Surrogation?

Surrogation refers to the human tendency to lose sight of the real objective and focus only (or almost entirely) on the metric that is designed to measure performance against the real objective. In other words, we have a tendency to decide (often subconsciously) that scoring well on the metric is the real objective.

For example, suppose that one of your company's important objectives is to provide outstanding customer experiences, and you decide to measure your performance against that objective using customer surveys. The survey results are shared with customer-facing employees, and they are frequently discussed at team meetings.

Under these circumstances, some of your employees can begin to think that the objective is to gain high customer survey scores rather than deliver great customer experiences. This becomes a significant problem if those employees begin to entice customers to give high scores on the surveys even if they aren't completely happy with their experiences.

Why Surrogation Happens

Surrogation can occur because of the inherent power of performance metrics to shape human behavior. After all, that's one of the main reasons they're used. When marketing leaders institute performance metrics, they expect their teams to use those metrics to guide their activities.

Dan Ariely, the noted behavioral economist and author of Predictably Irrational, described the power of performance metrics in a column in the Harvard Business Review. He wrote:

"Human beings adjust behavior based on the metrics they're held against. Anything you measure will impel a person to optimize his score based on that metric. What you measure is what you'll get. Period."

Eli Goldratt, the developer of the theory of constraints, made the same point in his book The Haystack Syndrome where he wrote:

"Tell me how you will measure me and I will tell you how I will behave."

Reducing the Odds of Surrogation

Surrogation can happen wherever performance metrics are used, and there's no ironclad way to completely prevent it. However, marketing leaders can take steps to lower the odds that surrogation will occur.

One effective way to reduce surrogation is to use multiple metrics when measuring the performance of significant programs or initiatives. This approach is most effective when the metrics used require managers and other team members to balance several competing dimensions of performance.

So, for example, if you are measuring the effectiveness of your demand generation program, you will obviously track the number of leads generated. But you should also track other aspects of performance such as the number of leads who actually become customers (the conversion rate), pipeline velocity, and customer acquisition cost.

This combination of metrics - or something similar - will lead your demand generation team to consider quantity, quality, and cost when evaluating the effectiveness of their activities.

Image courtesy of CC BY-SA via Flickr (CC).

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